Korean companies gear up investments in Indonesia
By Hendarsyah Tarmizi
SEOUL (JP): Four major South Korean companies are gearing up to take advantage of low labor costs and the growing domestic market in Indonesia by furthering their investments in the country.
The widely diversified Hyundai Group, which last year opened a industrial estate in Bekasi, West Java, will establish a car assembling plant next year.
Three companies -- Miwon Co Ltd, Korea Development Co. Ltd (Kodeco) and Sunkyong Industries -- have also made firm commitments to boost their Indonesian operations. Miwon will establish two new factories to produce animal feed and L-lysine, an additive substance for animal food. Kodeco will further expand operations into cement production, while Sunkyong, the largest textile producer in Korea, will double the production capacity of its polyester plant.
Hyundai Motors Company (HMC), the automotive unit of the Hyundai Group, will operate its Indonesian plant with its local partner.
HMC, South Korea's largest car producer, will be the second Korean automotive company to enter Indonesia after Kia Motor, which last year formed a joint venture with Hutomo Mandala Putra, the youngest son of President Soeharto. Indauda Putra Nasional, Kia's Indonesian joint venture, expects to start selling its cars next year.
"We have to form an assembling plant in Indonesia to enable us to compete with other car producers," a HMC spokesperson told The Jakarta Post at the company's plant in Ulsan.
She believed that Hyundai, known for its high efficiency, will be able to compete with Japanese and European car makers in Indonesia's growing automotive market.
Besides taking advantage of low labor costs, the establishment of the assembling plant will enable HMC to bypass Indonesia's high import tariffs imposed on completely built-up (assembled) cars.
She said HMC, which produces over 100,000 passenger cars per month, has yet to decide the production capacity of the planned Indonesian factory.
HMC, which employs around 41,000 workers, exported around 350,000 passenger and commercial vehicles last year to the United States, Canada, Europe and Asian countries.
Seasoning
Indonesia's growing domestic market and low labor costs have also lured other Korean companies to boost their direct investments. Miwon, one of the world's largest chemical seasoning producer, plans to set up two new factories as part of the company's expansion program in Indonesia.
Miwon, which at present operates three food seasoning factories, two in Surabaya, East Java, and another in Lampung, in the southern part of Sumatra, will establish two other companies to produce animal feed and L-lysine, an additive for animal food, near its industrial complex in Surabaya.
Executives of the company said that Miwon's presence in Indonesia is not only to take advantage of the country's cheap labor.
Lim Chong-Boo, director of Miwon's Strategic Management Division, said that Indonesia is not only the company's production base but also the headquarters for its operations in Southeast Asia.
"Indonesia is the country from where we supervise our whole operation in Southeast Asia," Lim told the Post, adding that staff being assigned to factories in other Southeast Asian countries such as Myanmar and Vietnam are mostly trained in Indonesia.
He acknowledged that low labor costs and the high availability of sugar cane, one of the materials in the production of monosodium glutamate, have enabled the company to compete on international markets.
Miwon sells 50 percent of its seasoning products on the Indonesian market.
Kwon Tae-Sun, director of the technical division, said the company's Indonesian subsidiary plans to sell a portion of its shares to the public to raise funds for its expansion program.
He said that the initial public offering (IPO) plan, which is now under preparation, will receive a good response from the public, given the company's prospects.
"Indonesia, with its large population, is a very promising market and that's why we are very upbeat about our future," Kwon said.
Cement
Kodeco, considered the pioneer of Korean investors in Indonesia and known for its long and lasting presence, plans to establish a cement plant in South Kalimantan in cooperation with Indocement, Indonesia's largest cement producer, and Marubeni of Japan.
Choi Jai-Wood, executive vice president of the company, told the Post that his company and its two partners will soon establish a joint venture, which will invest around US$400 million to establish the cement factory.
"Kodeco and Indocement will become majority shareholders in the planned joint venture, while the Japanese partner, which will help find financial sources for the project, is likely to have a five-percent stake," he said.
He said that the cement to be produced from the planned factory would be marketed both at home and overseas
Kodeco entered Indonesia for the first time in 1967 soon after it received a license from the government to produce timber in South Kalimantan.
Choi said that his company, which also operates an oil and gas field in East Java, recently received another forest concession contract in Irian Jaya.
Sunkyong, the largest integrated textile producer in Korea, also plans to double the production capacity of its polyester plant in Tangerang, West Java.
The Indonesian polyester plant, which is jointly owned by Sunkyong and Batik Keris, a major batik producer in Indonesia, will invest around $75 million for the expansion.
"It is the second stage of the Indonesian plant's expansion program," Kim Se-Ki, managing director of Sunkyong's plant in Suwon, told the Post.
The new expansion project, which will commence before the end of this year, is expected to double the company's polyester production capacity to 180 tons per day.
South Korea is the sixth largest foreign investor in Indonesia, with total commitments of around $3.6 billion for non- oil and non-financial businesses.
Growing labor costs in Korea have forced its companies to relocate operations to other Asian countries to enable them to remain competitive on the world markets.